Impact of international remittance inflows on poverty in Nigeria

Babajide Fowowe and Mohammed Shuaibu ()
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Mohammed Shuaibu: University of Ibadan, Nigeria

Journal of Developing Areas, 2021, vol. 55, issue 1, 27-40

Abstract: The 21st century has witnessed a surge in international remittance flows by almost 300% between 2000 and 2009. Total remittance inflow to Sub-Saharan Africa was US$34.8 billion in 2015, out of which Nigeria received US$20 billion; making it the highest remittance recipient in Sub-Saharan Africa. However, poverty incidence in Nigeria remains prominent as it rose from 51.5% in 2004 to 56.5% in 2010. At the same time, there is substantial emigration from Nigeria, and this could be linked to the high incidence of poverty. One of the primary motives for emigration is to send remittances home to alleviate poverty. Previous studies have considered this nexus in a partial equilibrium setting which is often marred by endogeneity bias. This makes the use of an economywide general equilibrium framework where the interaction between multiple agents, markets and institutions are captured and potential reverse causation is addressed more appropriate. Against this backdrop, this study conducts an empirical investigation of the impact of international remittance inflows on poverty in Nigeria. A computable general equilibrium model in which policy scenarios that reflect changes in remittances is calibrated. Findings reveal that a negative remittance shock led to an increase in poverty while a positive remittance shock led to a reduction in poverty. The effect of remittance shocks on poverty is transmitted through the income and consumption channels with the effect on the latter being more pronounced. The results underscore the role of remittances in smoothening consumption and ameliorating poverty in Nigeria. Therefore, the findings make a case for policies that facilitate the flow of remittances more reliably and at the lowest cost, development of remittance-related products (i.e. savings, insurance contribution for social protection) and better access to financial and business services that can stimulate the economy. In addition, a set of important structural and financial reforms that minimize cost-related inefficiencies such as weak infrastructure, low competition and financial regulation constraints need to be addressed. The study concludes that remittances cannot be exclusively relied upon for ameliorating poverty, rather it should be used to complement other policies.

Keywords: International Remittances; Poverty; Computable General Equilibrium; Diaspora bonds; Africa; Nigeria (search for similar items in EconPapers)
JEL-codes: D58 F24 I32 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:jda:journl:vol.55:year:2021:issue1:pp:27-40

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